SFI Group plc

views updated

SFI Group plc

SFI House
165 Church Street East
Woking
Surrey GU21 1HJ
United Kingdom
Telephone: (+44) 0 1483 227900
Fax: (+44) 0 1483 227903
Web site: http://www.sfigroup.co.uk

Public Company
Incorporated: 1986 as Surrey Free Inns Plc
Employees: 3,009
Sales: £115.2 million ($221.5 million) (2001)
Stock Exchanges: London
Ticker Symbol: SFI
NAIC: 722410 Drinking Places (Alcoholic Beverages); 722211 Limited-Service Restaurants

Woking-based SFI Group plc is one of the United Kingdom’s fastest-growing operators of drinking and eating establishments. The company operates nearly 200 bars across England under four key concepts. The Litten Tree, the company’s oldest bar format, are large-scale “chameleon” bars, that is, they change character—from restaurant bar in the daytime to multi-area nightclub at night—in order to attract different groups of patrons. Litten Trees also offer breakfast service, and a number of Litten Trees also feature morning sandwich bar service. In mid-2002, there were 58 Litten Trees in operation. The upscale Slug and Lettuce brand, acquired by SFI in 2000, offers an informal dining and drinking environment. The 52 Slug and Lettuce outlets are typically found in High Street (downtown) locations. Bar Med represents another chameleon bar concept created by the SFI Group, offering Mediterraneanstyle dining during the day and Ibiza-style dancing at night. The company operated 32 Bar Meds at the end of its 2001 year. The smallest member of the SFI brand group is Fiesta Havana, acquired from Capital Radio 1999. The seven Fiesta Havanas offer dining, music, and dancing with a Latin American theme. In addition to the company’s four core brands, SFI Group own 25 other hotels, restaurants, and bars, including five Break for the Border restaurants. The company also has been trying to sell off a number of its For Your Eyes Only lap-dancing bars; that operation was spun off from the company’s main business as a separate company. Elsewhere, SFI has adopted an ambitious growth program, acquiring 25 bars, including 24 Paris Café Bars, in 2001, with plans to add up to 30 more in 2002. The company, quoted on the London Stock Exchange, is led by CEO Andrew Latham, who took over the position from founder and Chairman Anthony Hill.

Building on the “Business Expansion Scheme”

Anthony Hill came to the bar business in the mid-1980s after a career that included positions as marketing director for Martini & Rossi and general manager at Seiko’s UK branch. In 1985, Hill formed his own company, called Surrey Free Inns plc. Hill intended to take advantage of the new Business Expansion Scheme (BES), which was set up to encourage the creation and growth of small businesses by giving generous tax breaks to investors. The original BES scheme allowed investors to write off the full amount of their investment against their income taxes.

Surrey Free Inns made its first share issue in 1986, raising £5 million. The company then began buying up individual properties, focusing on traditional pubs. The company set to work redeveloping the new businesses, enhancing their profitability. The company’s first major acquisition came in 1987, when it took over the Litten Hotel in London. This property, which the company redesigned, became the test ground for the company’s first concept bar, the Litten Tree, rolled out in the 1990s. By 1988, the company neared 20 properties.

In 1989, Surrey Free Inns placed a new rights issue, raising £4 million in order to buy 19 pubs from the First Leisure group. The company, now with nearly 40 sites, hoped to accelerate its growth, and in 1990 Surrey Free Inns spent another £4 million to build the 73-room Innlodge, which also featured a restaurant and conference facilities, in what was meant to become a budget-priced hotel offering four-star accommodations. In that year, the company completed two more acquisitions of individual properties.

Yet the company’s expansion had proved too rapid for Surrey Free Inns, particularly as the United Kingdom slumped into an economic recession. The difficult climate was further exacerbated by the outbreak of the Persian Gulf War. Surrey Free Inns difficulties continued into the mid-1990s, and by 1995 the company’s holdings had shrunk to just 25 sites. Surrey Free was close to going under but was rescued by Canadian brewer John Labatt, which loaned the company £500,000 in exchange for a 4.5 percent stake in the business.

The loan enabled Surrey Free Inns to develop a new strategy of building a chain of bars based on strong concepts. The company’s conversion of its Litten Hotel property had led it to develop a new type of bar-restaurant, called The Litten Tree. The company’s first chameleon bar, the large-scale Litten Tree was capable of completely changing its character from day to night, offering informal dining at lunchtime and converting to a nightclub featuring music, bands, dancing, karaoke, and other entertainment at night.

The first Litten Tree “superpub” opened in 1994 in Sutton and cost the company some £210,000 to develop. It took the company less than a year to realize a return on that investment as the Litten Tree formula proved a popular one. By mid-1995, Surrey Free Inns had decided to peg its future on the success of the concept and began redeveloping other properties in its portfolio to match the new concept—of the company’s 25 properties, about 15 met the Litten Tree’s large-scale format.

Branding Success for the Turn of the Century

Surrey Free Inns went public in mid-1995, listing on the newly created Alternative Investment Market (AIM) market of the London Stock Exchange. By then, the company had opened its second Litten Tree, in its Woking home, using the loan from Labatt. By mid-1996, the company operated seven Litten Trees. A new share offering, which raised £1.5 million, enabled Surrey Free to open three more Litten Trees before the end of that year. The company by then had caught the attention of the investment community, particularly after being named the first-ever AIM Company of the Year.

Yet Surrey Free nearly lost its independence in 1996 when then-larger Regent Inns acquired a stake in the company and appeared to be attempting to step up its position toward launching a possible takeover. The move fit in with a new period of activity in the United Kingdom’s bar scene, following the adoption of the Beer Orders, which required beer brewers to divest their pub holdings—a move set to place 11,000 pubs on the market.

Surrey Free’s success with Litten Tree encouraged it to develop a second, smaller bar concept in order to capture a larger percentage of a community’s drinking public. At the beginning of 1997, the company launched the pilot of the new brand, called Bar Med, a café concept with a Mediterranean theme, in Bournemouth. Surrey Free then began ramping up for a full-scale rollout of the Bar Med brand across the country.

The company paid more than £11 million in 1997 to acquire Richardsons Inns, a purchase which brought Surrey Free four large-scale venues, plus three small bars, and a side business, For Your Eyes Only, a bar featuring lap-dancing. Surrey Free set to work converting the Richardsons properties to its Litten Tree and Bar Med concepts. It also began developing plans to extend the For Your Eyes Only brand.

During 1998, Surrey Free continued adding new ventures, including the full-fledged rollout of the Bar Med brand. After a four-for-one stock split in August of that year, the company moved its listing to the London Stock Exchange’s main board a month later. At that time, Surrey Free Inns changed its name to SFI Group plc. The company continued acquiring individual properties, and by the end of the year had added 12 new bars to its growing network, reaching a total of 55 outlets at the beginning of 1999.

By then, SFI Group revealed that it had been conducting merger talks with Regent Inns, but the two sides were unable to agree on terms for an eventual merger. Instead, SFI Group set out to expand on its own, stepping up its number of new bar openings, with ten new pubs added in the first three months of 1999. Now convinced of the viability of its multi-brand strategy, the company began to search for a new pub brand concept to complement Litten Tree and Bar Med. In May 1999, the company launched a new pilot outlet, an upscale sandwich and coffee bar concept called Café Litten.

SFI continued to seek to diversify its portfolio, and in October 1999 the company acquired seven Fiesta Havana restaurants from Capital Radio for £9.45 million. At the same time, SFI announced its intention to “de-merge” the For Your Eyes Only concept, believing the lap-dancing concept to be at odds with its image as a public company. Through 1999, the company opened 20 new bars.

By mid-2000, the company operated 32 Litten Trees and 22 Bar Meds. SFI, however, had begun to seek to reposition its Bar Med brand toward larger venues, with late-night licenses and an Ibiza-style atmosphere, referring to the Spanish island that had become immensely popular with British tourists at the turn of the century for its all-night dance clubs. The acquisition of the upscale pub chain The Slug and Lettuce, for £31.6 million, gave SFI both a new brand and at the same time filled the smallvenue niche left behind by Bar Med. In addition, the company’s complementary brand strategy enabled the company to rebrand a number of its smaller Bar Med sites, which did not match the new large-scale concept for the chain, under the Slug and Lettuce format.

Company Perspectives

We strive to maintain an ongoing commitment to: Excellence in customer care, value, and product choice; Highest housekeeping standards; Quality entertainment appropriate to out-of-home leisure; Success in every aspect of our business.

After announcing its intention to add as many as 25 new sites by the end of 2000, SFI made a new acquisition, buying up a small Ireland-based chain of Break for the Border bars for £4.7 million. By the end of that year, SFI had boosted its total number of outlets past 100. The company continued to tout the advantages of its multi-brand offering, which enabled it to establish itself in multiple locations in a single town, and even on the same street. Yet the different target markets for each of its brands shielded the bars from cannibalizing one anothers’sales. In this way, the company was able to raise its future targets as well, with plans to top more than 400 outlets in the years to come.

Acquisitions of other bar groups had clearly become part of the company’s strategy at the turn of the century. In 2001, SFI paid ? VC Capital Partners and Bridgepoint Capital £15 million to acquire the Parisa Group’s Parisa Café Bars, a chain of 24 outlets. SFI began converting those outlets to its portfolio of strong pub brands, with most of the Parisa sites slated to become Slug and Lettuce pubs. Meanwhile, the company, which had opened three additional For Your Eyes Only branches in order to build up that operation to a scale sufficient to sell, had failed to find a buyer for the concept. After an attempt to sell the business in a management buyout fell through because of lack of financing, SFI spun off For Your Eyes Only into a separate, independently operated company.

In 2002, founder Anthony Hill announced his intention to retire from the company at the age of 65, taking the position of chairman and naming Andrew Latham as the new CEO. By then, Hill’s company had grown to nearly 186 outlets, with total sales over £144 million. SFI had taken a leading position in the United Kingdom’s High Street bar sector. Yet the company showed no signs of slowing down in its ambitions, brandishing a landbank of some 60 new properties lined up for its successful pub brands.

Principal Competitors

Compass Group PLC; Whitbread Holdings PLC; Punch Retail Ltd.; Compass Roadside Ltd; Wolverhampton and Dudley Breweries PLC; Cleveland Place Holdings PLC; Greene King PLC; J D Wetherspoon PLC; Greene King plc; Luminar PLC; Ascot PLC; Enterprise Inns PLC; Punch Pub Company Ltd.; Daniel Thwaites PLC; Pubmaster Ltd.; Young and Co’s Brewery PLC; Regent Inns PLC.

Key Dates:

1985:: Anthony Hill forms Surrey Free Inns Plc and begins acquiring pub and hotel properties.
1987:: Surrey Free acquires the Litten Hotel, which will become the basis for company’s Litten Tree brand.
1989:: Nineteen pubs are acquired from First Leisure.
1994:: The first Litten Tree pub is rolled out.
1995:: The company goes public on the London Stock Exchange’s AIM market.
1998:: The company changes its name to SFI Group and switches its listing to London the Stock Exchange’s main board.
2002:: Anthony Hill retires, and Andrew Latham is named CEO.